Tax Reporting ISO and NQSO

Video: How Does a Startup Report ISO and Non-Qualified Stock Options for Tax Purposes?

This is a big question that we get in December and January of each year. What should we be doing with all of those employees and contractors that you’ve given ISO’s and NQSO’s too?

The first thing that you’re gonna wanna keep in mind, is that these forms are due by January 31st. You have a relatively short period of time to make sure that you get all these things filed for your employees and your contractors.

Two different flavors of stock options here. There are incentive stock options of course and non-qualified stock options.

The first one that we’re gonna go over are ISO’s. If you have given incentive stock options to employees … Keep in mind, you can only give ISO’s to employees. The form that you’re gonna wanna fill out there is a 3921. Your accountant can do this for you, or if you have a special subscription on Carta or Capshare, they can help you out as well. Again, ISO. You’re gonna wanna file form 3921 for your employees.

The second type of stock option out there is a non-qualified stock option. This can go to either employees or contractors. If you’ve given non-qualified stock options to your employees, what you’re gonna wanna do is make an adjustment on their W2, box 12. That means that you’re gonna have to go back to Gusto or TriNet, or whoever your payroll provider is, and work to make sure that you’ve adjusted their W2 so that you can get it out to them by January 31st.

If you’ve given non-qualified stock options to a contractor, then you’re gonna need to file form 1099 miscellaneous. That is tax reporting for ISO’s and NQSO’s.